Carlisle Engine Company manufactures and sells diesel engines for use in small farming equipment. For its 2014 budget, Carlisle Engine Company estimates the following: Selling price Variable cost per engine Annual fixed costs Net income Income tax rate $ 4,000 $ 1,000 $4,800,000 $1,200,000 20% The first-quarter income statement, as of March 31, reported that sales were not meeting expectations. During the first quarter, only 400 units had been sold at the current price of $4,000. The income statement showed that variable and fixed costs were as planned, which meant that the 2014 annual net income projection would not be met unless management took action. A management committee was formed and presented the following mutually exclusive alternatives to the president: Required: 1- If no changes are made to the selling price or cost structure, determine the number of units that Carlisle Engine Company must sell to break even. 2- Carlisle Engine Company plan to sell another 2,100 units during the remainder of the year. Total fixed costs and variable cost per unit will stay as budgeted. What is the lowest selling price the company accept to maintains the targeted net income $1,200,000? 3- Carlisle Engine Company plan to reduce selling price to $3,500 for the remainder of the year. Total fixed costs and variable cost per unit will stay as budgeted. How many more units should the company sold to maintains the targeted net income $1,200,000?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Carlisle Engine Company manufactures and sells diesel engines for use in small farming equipment. For its 2014 budget, Carlisle Engine Company estimates the following: Selling price Variable cost per engine Annual fixed costs Net income Income tax rate $ 4,000 $ 1,000 $4,800,000 $1,200,000 20% The first-quarter income statement, as of March 31, reported that sales were not meeting expectations. During the first quarter, only 400 units had been sold at the current price of $4,000. The income statement showed that variable and fixed costs were as planned, which meant that the 2014 annual net income projection would not be met unless management took action. A management committee was formed and presented the following mutually exclusive alternatives to the president: Required: 1- If no changes are made to the selling price or cost structure, determine the number of units that Carlisle Engine Company must sell to break even. 2- Carlisle Engine Company plan to sell another 2,100 units during the remainder of the year. Total fixed costs and variable cost per unit will stay as budgeted. What is the lowest selling price the company accept to maintains the targeted net income $1,200,000? 3- Carlisle Engine Company plan to reduce selling price to $3,500 for the remainder of the year. Total fixed costs and variable cost per unit will stay as budgeted. How many more units should the company sold to maintains the targeted net income $1,200,000?

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